uploads///Inventory Spread and Crude Oil Prices

Oil Inventories: What Do They Indicate for Oil Prices?


Jul. 6 2016, Updated 9:19 a.m. ET

Last week’s inventory data

US commercial crude oil (USO) (UWTI) (SCO) (UCO) (BNO) inventories fell by about 4.05 MMbbls (million barrels) for the week ending June 24, 2016—compared to the previous week. Inventories were at 526.57 MMbbls for the week ending June 24, 2016, according to data released by the EIA (U.S. Energy Information Administration) on June 29, 2016.

It will be interesting to see the impact of the EIA’s inventory data for the week ending July 1, 2016. The data will be released on July 7, 2016.

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Inventory spread and crude oil

The spread between crude oil inventories and their five-year average widened consistently since January 2015 after it broke four-year highs and hit record levels.

During this period, crude oil prices had been falling. So, the relationship between crude oil inventories and crude oil prices is inverse. You can see this in the above graph. Crude oil prices bottomed out in early 2016. Crude oil inventories seem to have topped out as well.

Crude oil inventory levels, that exceed their historical averages, could be important for oil-weighted stocks like Concho Resources (CXO), Bill Barrett (BBG), Northern Oil & Gas (NOG), Oasis Petroleum (OAS), Abraxas Petroleum (AXAS), Halcon Resources (HK), Synergy Resources (SYRG), and Kosmos Energy (KOS).

Crude oil sentiments also impact ETFs such as the United States Brent Oil ETF (BNO), the PowerShares DWA Energy Momentum ETF (PXI), the Energy Select Sector SPDR ETF (XLE), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), and the ProShares UltraShort Bloomberg Crude Oil (SCO).

In the next part, we’ll analyze the relationship between crude oil and the US Dollar Index (UUP).


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